Question 11.SE.2: Aquarius plc has estimated the following free cash flows for...

Aquarius plc
There are a number of ways in which the accuracy of the predicted free cash flow figures may be checked. These include:

• Internal
  • Past results. These may be used to see whether the future projections are in line with past achievements.
  • Strategy. The future free cash flows for the business should reflect the strategies that have been put in place over the planning period.
  • Capacity. The ability of the business to generate the free cash flows from the resources available over the planning period should be considered.
  • Market research. The evidence from any market research carried out by the business should be consistent with the estimates made.
• External
  • Industry forecasts. Forecasts for the industry as a whole may be examined to see whether the predicted sales and profits for the business are in line with industry forecasts.
  • External commentators. Stockbrokers and financial journalists may have made predictions about the likely future performance of the business and so may provide an external (and perhaps more objective)view of likely future prospects.
  • Technology. The likely impact of technological change on free cash flows may be assessed using technology forecasts.
  • Competitor analysis. The performance of competitors may be used to help assess likely future market share.

This is not an exhaustive list. You may have thought of other ways.